Think hard before killing your goose
I’d like to tell you about one of Aesop’s Fables. It is one called “The Goose and the Golden Egg.” It’s a great story and it goes something like this:
There once was a farmer who had a goose he visited every day. One morning, he went to see the goose and noticed it had a glittery, golden egg laying in its nest. The farmer tossed the egg aside, assuming someone was playing a joke on him. But curiosity got the better of him, and he retrieved the egg and took it to town to see if it was worth anything.
There, he learned that the egg was solid gold. He sold it at the market for a great price and returned home.
The following day, he went to the goose’s nest and found another golden egg. This happened day after day for some time. The farmer sold each egg and grew richer over time.
But then something happened. The farmer began to get impatient with the goose because she only gave him one egg per day. He didn’t feel like he was getting rich fast enough. So, one night he devised a scheme.
The farmer decided he would cut off the goose’s head, reach down inside her and get all the golden eggs at once.
The following day, he did exactly that. But when he reached into the goose, he only found what one would expect to find inside — regular goose innards. Now, he had no eggs, and his prized goose was dead.
As investors, we are the farmer, and our houses are the goose.
Ideally, investors will do what the farmer would not. They will allow a rental property to give them a golden egg each month in the form of a rental payment. This allows them to build wealth over time.
But you have be disciplined in order to do this, which is tough right now.
We are in a higher market, which makes the idea of selling every house you come in contact with appealing. When you do this, though, you have cut off your goose’s head. A sale can give you a lump sum to eat off of, but be careful with this strategy for multiple reasons.
I’m getting a lot of calls from new investors wanting to know how to get into the flip game. I’m hearing stories of them paying too much for a house, taking on massive rehabs and counting on unheard-of market values for when they sale. In our current climate, this strategy can get you into trouble fast.
That’s because we maybe at the peak of this market cycle. And you don’t want to get caught with a house like that when the music stops.
I have heard many forecasters saying the market will make a correction soon, noting that historically, our housing markets have had a seven-year cycle. We haven’t seen a market shift since 2008, which means we are 10 years into this cycle.
That’s one reason I think we maybe at the peak. Another reason is that we just did our very first price drop in over a year. Prior to this, everything else we’ve sold went for asking price or above. And it’s important to note that they all appraised.
The necessity for this price drop may be due to a seasonal slow down and not to a cooling of the entire market. I don’t have a real estate crystal ball to let you know which one it is, but I would still use caution if you intend to lop of your goose’s head.
That being said, if you have multiple rental properties in your portfolio, this maybe the last opportunity to cull your flock of the underperformers for the highest possible price. But instead of eating that money, set it aside for the next correction when you can pick up more houses at lower prices that produce you plenty of golden eggs to come.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.